Does Money Buy Happiness? The Link Between Salary and Employee Satisfaction

Mario Nuñez

June 18, 2015

Every so often a new study claims to have quantified the link between money and happiness. However, studies that examine this relationship with one’s employer are harder to find. In this post, we’ll explore whether or not higher salaries make for more satisfied employees, and if not, what factors contribute to overall employee satisfaction.   Salary vs. Satisfaction We began with a sample of 221,000 Glassdoor users who contributed both a salary report and an employer review for the same company since 2014.[1] At first glance, it appears that higher pay is associated with higher employee satisfaction, as pictured in the chart below. Only 10 percent of users making more than $120,000 per year left a one out of five star review, compared to 15 percent of users making less than $30,000 per year. Conversely, 51 percent of users making more than $120,000 per year left either four or five star reviews, compared to 40 percent of users making less than $30,000 per year. In other words, it seems higher salaries mean higher satisfaction. Figure 1. Distribution of Employer Star Rating by Salary StarRatingBySalaryGreen Source: Glassdoor Economic Research. Outside Factors Affecting Satisfaction When we dig in a level deeper, we find the biggest problem with the above graph is that it doesn’t explain other factors that might contribute to employee satisfaction. To isolate the relationship between money and happiness, we ran a linear regression with company satisfaction rating as the response variable and log-transformed total pay as the explanatory variable. We also included controls for location (state), gender, education, years of experience, job title, employer size, industry, and employee status (i.e., was the employee working for that company at the time the review was written?). For ease of interpretation, we transformed the company satisfaction rating to a scale of 0 to 100, with 0 being completely dissatisfied (a 1-star rating) and 100 being completely satisfied (a 5-star rating). Our model suggests that a 10 percent increase in employee pay is associated with a 1 point increase in overall company satisfaction on a 0-100 scale, controlling for all other factors. In other words, if an employee making $40,000 per year were given a raise to $44,000 per year, his or her overall employee satisfaction would increase from 77 percent to 78 percent. And it’s important to note that there is a diminishing return to happiness for every extra $1,000 in earnings. Although this effect is statistically significant (p < 0.0001), it is small. Happiness Factors Beyond Salary Since money doesn’t seem to have a huge effect on employee satisfaction, what other factors influence job satisfaction? To examine this, we included controls for employee ratings for business outlook, career opportunities, culture and values, compensation and benefits, senior leadership and work-life balance from Glassdoor’s employer review survey. In this regression, all of these control variables were statistically significant predictors of workplace satisfaction. And the model predicts overall satisfaction pretty well, explaining about 76 of variation in employee satisfaction. From this model, we find an employee’s culture and values rating for the company has the biggest impact on job satisfaction. And not surprising given the findings above, we find an employee’s compensation and benefits rating has the second smallest effect on overall satisfaction, ahead of business outlook rating. The chart below shows the effect of each predictor on overall employer satisfaction. Figure 2. Impact of Factors Beyond Salary on Employee Satisfaction ContributionTosSatisfactionGree Source: Glassdoor Economic Research. At first glance, we were surprised to see an employee’s culture and values rating so much more important for job satisfaction than compensation and work-life balance ratings, since the latter two factors are frequently discussed in the HR world. However, on further reflection an employee’s culture and values rating probably represents a combination of factors that contribute to overall well-being such as company morale, employee recognition, and transparency within the organization. One unexpected finding is that there is a clear relationship between years of experience and happiness at work. In short, older workers tend to be less satisfied. For example, a one-year increase in years of experience is associated with a 0.6-point decrease in overall employee satisfaction, after controlling for all other factors. This might reflect learning about the quality of work environments over time. Or perhaps workers become more jaded with their employer as they progress throughout their career. Figure 3. More Experience is Associated with Lower Employee Satisfaction SatisfactionByAgeGreen Source: Glassdoor Economic Research. It’s Not All About The Money Although salary matters for employee satisfaction, there are a variety of other factors that employers should also be paying attention to. Employees tell us that articulating a prosperous career path for employees, hiring a competent executive team, and maintaining a positive culture appear to be far more important ways to ensure satisfied employees. And although companies can’t control the impact of age on employee satisfaction, perhaps an employee wellness program can help promote youthful optimism—and the high employer ratings that go along with it. Footnote: [1] We filtered the sample to include only individuals reporting salaries of $200,000 per year or below, to avoid high-salary outliers from influencing the estimated regression coefficients.

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